Geopolitics Redraws Global Market Landscape

Global Markets in Flux: Understanding the Shifts in Trade, Industrial Policy, and Alliances

The post-Cold War era's assumptions about free trade, open borders, and peripheral political risk have been dismantled with remarkable speed. The US is fundamentally reshaping its economic and geopolitical relationships with the world, marking a decisive break from the post-Cold War order. This shift has significant implications for investors, who must now navigate a rapidly changing landscape.

Financial Consequences

Elections in 2025 drove notable policy changes that altered inflation, borrowing costs, currency values, and capital flows. Trade policy, once a slow-moving lever, now moves markets overnight, disrupting cross-border financial flows and chilling investor sentiment. Geopolitical risk has become the fastest-moving risk in any portfolio, with 91% of Chief Risk Officers rating it as a top-five risk for the next three years, according to an EY risk management survey.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Impact on Emerging Markets

Geopolitical risk systematically reduces flows across asset classes, with the sharpest effects on emerging economies. India, for instance, faced a 50% US tariff on key exports, triggering significant foreign portfolio outflows and sectoral earnings downgrades. However, India's economy remains fundamentally consumption-driven, with exports more vulnerable to external trade shocks than many other emerging markets.

US Midterm Elections

The US midterm elections, ten months away, are set to bring notable shifts in government policy that could affect both the economy and financial markets. Historically, the S&P 500 has averaged just 2.9% in the twelve months before midterm elections, compared to a long-run average of 8.9%. The outcome will have significant implications for emerging markets, including India, which sits at a particularly sharp intersection of these pressures.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Key Takeaways

• The US is fundamentally reshaping its economic and geopolitical relationships with the world.
• Elections in 2025 drove notable policy changes that altered inflation, borrowing costs, currency values, and capital flows.
• Geopolitical risk has become the fastest-moving risk in any portfolio.
• Emerging markets, including India, are vulnerable to external trade shocks.
• The US midterm elections will have significant implications for emerging markets and global capital flows.

Event

Charles Myers, Chairman & Founder of Signum Global Advisors, will examine the implications of US policy changes on emerging markets and global capital flows at the IDFC FIRST Bank presents Moneycontrol Global Wealth Summit 2026.